Profile

After the Frenzy

Ian Warmerdam, the Henderson Global Technology Fund's manager, isn't an early technology adopter in his consumer spending or in his fund portfolio. He waits until enthusiasm wanes, buys at a discount, and holds for the long haul.

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Though he follows technology for a living, Ian Warmerdam admits that, personally, he's usually a late adopter. "I certainly didn't camp out to buy an iPhone 5, and I can't imagine I'd ever be excited enough about a new piece of consumer technology to even stand in line for it," says the lead manager of the $339 million
Henderson Global Technology
Fund (ticker: HFGAX).

That's fitting of his investment strategy, which avoids the "hype cycle" that is typical of the early stages of a technology company. "We're looking for new and exciting technologies, but the problem is, so is everyone," says Warmerdam, who thinks that's currently the case with cloud-computing and 3-D printing. "By the time they come to the public market, they tend to have the kind of high valuations we wouldn't tolerate."

After the frenzy, however, there is often a period of dissolution, followed by recovery and then apathy. That's when Warmerdam, 39, likes to make his move.

Ian Warmerdam combined his love of chess and suspicion of technology into a successful stock-picking strategy.
Martin Hunter for Barron's

As a kid growing up on a sheep farm in the Scottish Highlands, Warmerdam was a keen chess player, and even competed, until he realized "this was not a path to getting a girlfriend." After studying technology and business at the University of Strathclyde in Glasgow, he became intrigued with portfolio management, which he likens to his childhood passion. "It's something that's both analytical and competitive," he says. After working his way up from analyst to investment manager at prominent United Kingdom investment and insurance firms, Warmerdam joined U.K.-based Henderson Global Investors in 2001.

His global tech fund launched on Aug. 31, 2001. The timing wasn't exactly ideal—post-bubble, investors were not very interested in tech stocks. "I knew the near-term prospects would not be very good, but I believed in the long-term prospects," he says. Indeed, the dot-com debacle was a wake-up call for tech companies and investors. "The companies we see today have some of the healthiest balance sheets of any industry," he says. Henderson Global Technology is up 12.8% a year over the past decade, better than 90% of its peers.

Working with co-manager Stuart O'Gorman out of the firm's Edinburgh office, Warmerdam aims to hold between 45 and 60 stocks of varying market caps. The team looks for companies it believes to be truly undervalued and can hold for five years or longer, a lifetime in this universe.

When searching for investment ideas, Warmerdam tends to focus on one of five key themes: e-commerce, online advertising, data, connectivity, and paperless payment. Lest the focus on e-commerce and online advertising raises eyebrows, Warmerdam says, "People say these are old news, to which I say, we've barely scratched the surface."

In fact, many of the fund's top holdings have been around for more than a decade, survived the boom-and-bust cycle of the late 1990s and remain leaders today, only at more compelling prices.

There's $122 billion in market capitalization
Amazon.comAMZN -0.66472676793294%Amazon.com Inc.U.S.: NasdaqUSD372.1
-2.49-0.66472676793294%
/Date(1427835600307-0500)/
Volume (Delayed 15m)
:
2354772AFTER HOURSUSD372.65
0.5499999999999540.14780972856758937%
Volume (Delayed 15m)
:
150848
P/E Ratio
N/AMarket Cap
173953601865.354
Dividend Yield
N/ARev. per Employee
577469More quote details and news »AMZNinYour ValueYour ChangeShort position
(AMZN), which the fund has owned off and on since the beginning. The fund's most recent purchase was January 2009 at $59, when it was trading at just over one times forward sales, a far cry from the 32 times it was fetching in 1999. The stock now trades at $268 a share, in part because of its move into cloud-computing, which Henderson considers icing on the cake.

Cisco SystemsCSCO 0.3097667638483965%Cisco Systems Inc.U.S.: NasdaqUSD27.525
0.0850.3097667638483965%
/Date(1427835600199-0500)/
Volume (Delayed 15m)
:
26918480AFTER HOURSUSD27.525
%
Volume (Delayed 15m)
:
2339463
P/E Ratio
16.28698224852071Market Cap
141146025030.236
Dividend Yield
3.0517711171662127% Rev. per Employee
649402More quote details and news »CSCOinYour ValueYour ChangeShort position
(CSCO) is another old hat that Warmerdam picked up in August 2011, when the stock was trading at just $15 a share. Cisco, now with $110 billion in market value, has undoubtedly moved from a high-growth firm to one with more modest growth but attractive valuations: It's trading at less than 11 times forward earnings. At its peak in 1999, it was priced at 150 times earnings, says Warmerdam. "Returns will be driven by management's acceptance that they are now a modest-growth company and are managing accordingly," he adds. "Revenues should grow in line with, or slightly ahead of, the broad market, with faster earnings growth."

Henderson Global Technology

Total Returns*

1-Yr

5-Yr

10-Yr

HFGAX

10.40%

7.56%

12.81%

MSCI World

16.43

1.70

8.48

% of

Top 10 Holdings

Ticker

Portfolio**

Apple

AAPL

6.72%

Samsung Electronics

005930.Korea

4.02

Cognizant Tech Sol

CTSH

3.59

MasterCard

MA

3.34

Cadence Design Sys

CDNS

3.20

Microsoft

MSFT

3.17

Nuance Comm

NUAN

3.17

ARM Holdings

ARMH

1.96

Yahoo!

YHOO

1.93

TripAdvisor

TRIP

1.86

Total:

32.96%

*All returns are as of 1/30/13; five- and ten-year returns are annualized. **As of 12/31/12 Sources: Morningstar; Henderson Global Investors

He scooped up top holding $428 billion
Apple AAPL -1.5351744876157316%Apple Inc.U.S.: NasdaqUSD124.43
-1.94-1.5351744876157316%
/Date(1427835600323-0500)/
Volume (Delayed 15m)
:
40410221AFTER HOURSUSD124.57
0.1399999999999860.11251305955155509%
Volume (Delayed 15m)
:
1625333
P/E Ratio
16.657295850066934Market Cap
736073426681.742
Dividend Yield
1.5108896568351684% Rev. per Employee
2153110More quote details and news »AAPLinYour ValueYour ChangeShort position
(AAPL) in 2003, when it was still a niche computer maker. "We got involved because of the valuation and huge amount of cash on the balance sheet," he says, adding that the stock was then trading at today's equivalent of $8 a share. Even at $456 a share, Apple is still cheap on a price/earnings basis, he says, though he recently began trimming his stake, saying that Samsung Electronics (005930.Korea) has done a "terrific job" with smartphones and tablets and will take market share from Apple.

Although U.S. companies typically account for 60% to 70% of the portfolio, the fund takes a more global perspective than its sector peers. "We think there's a real opportunity in buying small- and mid-cap companies internationally," he says. "Many of our competitors don't invest outside the U.S. at all."

One such company is the $31 billion Dutch lithography company
ASML HoldingASML.ae -0.3154905878641287%ASML Holding N.V.Netherlands: AmsterdamEUR94.79
-0.3-0.3154905878641287%
/Date(1427841589000-0500)/
Volume (Delayed 15m)
:
1502383
P/E Ratio
29.370391026832745Market Cap
41675270988.7505
Dividend Yield
0.7384745226289693% Rev. per Employee
517430More quote details and news »ASML.aeinYour ValueYour ChangeShort position
(ASML.Netherlands), which is a leader in producing a key piece of equipment for semiconductors. "Every year, semiconductors get more powerful and smaller in size, and that's because lithography makes it possible for smaller and smaller circuits."

Warmerdam is also sold on U.K. real-estate Website $2.8 billion
Rightmove
(RMV.U.K.), which he scooped up for $8 a share in 2009. "It's the place to go if you're buying or selling a property in the U.K.," he says. While the displacement of print real-estate ads is hardly a new trend, Warmerdam believes the company still has a great deal of headroom for increasing revenue, both through greater market share and incremental price increase. "A significant amount of real-estate advertising still happens on paper, but it has been steadily moving online," he says.